BRICS use eurozone crisis to come into their own

The recent G20 summit indicated that the BRICS group is becoming an influential geopolitical player. Source: AP

Although individual BRICS countries had made offers to help the EU, the decision on the sidelines of the G20 summit to act collectively shows that the group is becoming a real global player.

The only significant
decision to come out of the Cannes G20 Summit was made not at the summit
itself, but at a meeting on the sidelines. The BRICS leaders, during a separate
conference during the summit, decided to work out a common position on the Eurozone’s problems
– a move that shows that the group is becoming a real global player.

The central issue under discussion at the
summit was the national debt plaguing the Eurozone members. In the final
declaration, the G20 leaders merely said that they were committed to increasing
IMF resources (clearly with an eye to helping the EU countries), but gave no
concrete details, and welcomed the resolve of the European countries to defend
the euro.

Major emerging markets have a stake in
preventing a financial disaster in Europe because it would inevitably spread to
other regions. The EU is a key trading partner for the BRICS. The EU’s trade
with China stands at 35.6 billion euros ($49 billion) – 800 million euros ($1.1
billion) more than its trade with the United States. The eurozone also accounts
for 50 percent of Russia’s foreign trade.

So, if the Greek scenario spreads to other
debt-ridden EU countries, a new world financial crisis is guaranteed. Experts calculate
that, in order to deal with the problem, 1 trillion euros ($1.4 trillion) will
be needed before the end of this year and a further 1.5 trillion euros ($2.1
trillion) next year. The European Financial Stability Fund (EFSF) cannot
resolve this problem alone. There is growing talk on the market that the eurozone
cannot do without outside help, including from the BRICS countries.

BRICS countries have been discussing options
for helping the Eurozone since September. IMF head Christine Lagarde has
supported the group’s efforts, which is notable because cooperation with the
IMF is necessary for delivering any aid the BRICS decide to provide.

“Financial support for the Eurozone by major
emerging markets is highly probable” according to Bogdan Zvarich, chief analyst
with Net Trader company. “The forms may vary: loans from individual BRICS
countries through IMF mechanisms, purchase of the problem countries’ debt
instruments… In fact, China has already embarked on this road.”

Beijing has already bought 100 billion euros
($137 billion) worth of Italian debts, and EFSF head Klaus Regling has held
talks in the Chinese capital on a further $100 billion loan to the fund. And in
mid-October, Russia indicated that it was prepared to lend the Eurozone $10
billion, and during the summit, Russian President Dmitry Medvedev reaffirmed
that this was a possibility.

But the decision by the group to act together
represents a new phase in the development of the BRICS from a constructed
collective of emerging economies to a global economic and political force.

“The appearance of a common BRICS position
means that its status is rising to that of a real global player. It is worth
the effort. These countries can meet the challenge,” said Nikita Maslennikov,
adviser to the Russian Institute of Contemporary Development. He describes the
decision to hammer out a common position as “the start of the process of BRICS
positioning itself as a subject of geopolitics. It is already a player in the
world economy but it has yet to emerge as a player in global politics.”

“The overall picture shows that BRICS
countries tend to solve issues collectively. That means that BRICS will channel
its aid to the Europeans through the International Monetary Fund,” Maslennikov said.

“Such a possibility [BRICS assistance to the Eurozone]
does exists,” the minister said. “Our countries are ready to take part in these
combined efforts, including by issuing loans through the channels at the
disposal of the IMF.”

“I think BRICS aid to the European Union is a
distinct possibility,” said Andrei Mordavchenkov, financial markets operations
director with the Partner company. It can be channeled either through the IMF,
that is, in the shape of credits or the like, or through purchase of the
much-touted European Union bonds.”